Downing TWO VCT Plc - Half-year report

Downing TWO VCT plc

LEI: 213800HJGTPW7F8YEY55
Half-Yearly Report
for the six months ended 30 June 2020

Performance summary

‘F’ Share pool	30 Jun 2020		31 Mar 2020		31 Dec 2019		30 Jun 2019
	Pence		Pence		Pence		Pence
Net asset value per ‘F’ Share	18.8		21.6		24.7		30.6
Cumulative distributions per ‘F’ Share	72.0		72.0		72.0		67.0
Total return per ‘F’ Share	90.8		93.6		96.7		97.6

‘G’ Share pool	30 Jun 2020		31 Mar 2020		31 Dec 2019		30 Jun 2019
	Pence		Pence		Pence		Pence
Net asset value per ‘G’ Share	34.1		36.0		48.1		63.2
Cumulative distributions per ‘G’ Share	53.5		51.5		51.5		37.5
Total return per ‘G’ Share	87.6		87.5		99.6		100.7

‘K’ Share pool	30 Jun 2020		31 Mar 2020		31 Dec 2019		30 Jun 2019
	Pence		Pence		Pence		Pence
Net asset value per ‘K’ Share	36.6		50.3		58.2		72.9
Cumulative distributions per ‘K’ Share	7.5		-		-		-
Total return per ‘K’ Share	44.1		50.3		58.2		72.9

Forthcoming dividends

			‘K’ Shares
Interim 2020 – Payable 27 November 2020			2.5p

CHAIRMAN’S STATEMENT

Introduction

I present the Half-Yearly Report for the six months ended 30 June 2020.

As Shareholders will be aware, a number of the Company’s portfolio businesses have faced some significant challenges over the last couple of years. With significant exposure to the hospitality sector, the coronavirus pandemic has unfortunately further impacted a number of the portfolio companies

The Company has three share pools, two of which are in process of realising investments and one which is preparing to start the realisation process.

A brief summary of each share pool is provided below.

Net asset values and overview

‘F’ Share pool
The ‘F’ Share pool launched in 2012 and is currently in its realisation phase. Exits from a number of investments have been effectively put on hold as a result of the ongoing pandemic, however the Manager is still working on a number of possible divestments in order to return funds to Shareholders.

At 30 June 2020, the remaining net asset value (“NAV”) was 18.8p per F Share, a decrease of 5.9p (23.9%) over the period. Total Return (NAV plus dividends paid to date) is now 90.8p, compared to the original cost, net of income tax relief, of 70p per share.

The ‘F’ Share pool still holds nine investments, with plans resuming for exits from each of them.

The task of exiting from the remaining investments is dependent on third parties and it is therefore difficult to accurately estimate when this process will complete. A number of investments in the portfolio are in industries that have been severely impacted by the pandemic, and as a result have suffered delays in the divestment timeline.

The Investment Manager believes there are reasonable prospects for completion of some exits from the portfolio during the course of this year. The Manager anticipates that the next major distribution will be paid in 2021.

‘G’ Share pool

The ‘G’ Share pool passed its five-year anniversary in November 2018 and the focus remains on the process of realising the remaining investments, in order to return funds to Shareholders.

At 30 June 2020, the pool held 12 investments and the net asset value (“NAV”) was 34.1p per ‘G’ Share, which represents a net decrease of 12.0p (24.9%) over the period, after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 87.6p, compared to the initial NAV, before income tax relief, of 100.0p (or original cost, net of income tax relief, which was typically between 70.0p and 75.0p, depending on costs).

The ‘G’ Share pool is expected to make distributions as realisations are achieved. The Investment Manager expects to resume this process over the remainder of the year.

‘K’ Share pool
The ‘K’ Share pool raised funds in 2016. The target date to start realising investments is 2021.

Unfortunately, the portfolio has suffered heavily over the six-month period with most investments badly impacted by the consequences of the pandemic.

At 30 June 2020, the share pool held 15 investments and the net asset value (“NAV”) was 36.6p per ‘K’ Share, which represents a net decrease of 14.1p (24.2%) over the period, after adjusting for the dividends paid out of 7.5p. Total Return (NAV plus dividends paid to date) is now 44.1p per K Share, compared to the initial NAV before income tax relief, of 100.0p (or original cost, net of income tax relief, which was typically between 70.0p and 75.0p, depending on costs).

The Board acknowledges that overall performance of the K Share pool is extremely poor. As noted previously, the Board has reached agreement with the Investment Manager such that no further management fees will be paid in respect of the K Share pool.

The K Share pool does have cash available so will pay an interim dividend of 2.5p per ‘K’ Share on 27 November 2020, to Shareholders on the register at the close of business on 6 November 2020.

Share buybacks

The Company is now unlikely to make any further purchases of any of its shares as the process of returning funds to all groups of shareholders is progressing.

No share buybacks in respect of any share class were undertaken during the period.

Outlook
The further losses of value on all pools since the valuation at 31 March 2020 are extremely disappointing. Although there is the possibility of recoveries in value, the recent increase in coronavirus infections in the UK may further harm the sectors in which many of the portfolio companies operate and could result in further losses.

The Board has given consideration to the best way forward from this position. The Board does not consider that a change of manager at this stage is practical or would be in the best interest of shareholders, but believes that continuing to work closely with the existing manager to ensure everything is done to recover value is the best route.

The Board does not expect to raise any new funds for the Company in future and so is now considering putting proposals to Shareholders for the Company to take advantage of the VCT winding up regulations which involves entering into a members’ voluntary liquidation. This will allow the company to reduce its running cost while it realises the investments across all share pools. The Board intends to prepare proposals for shareholder approval in the coming months.

Hugh Gillespie
Chairman

30 September 2020

INVESTMENT MANAGER’S REPORT
‘F’ SHARE POOL

As at 30 June 2020, the ‘F’ Share pool held nine investments. Focus for the ‘F’ Share pool remains on the realisation of its investments and maximising Shareholder returns which has been delayed due to the ongoing coronavirus pandemic.

Net asset value, results and dividend
At 30 June 2020, the net asset value (“NAV”) for a holding of one ‘F’ Share was 18.8p, a decrease of 5.9p (23.9%) over the period. Total Return (NAV plus dividends paid to date) is now 90.8p.

The loss on ordinary activities for the ‘F’ Shares, after taxation was £641,000 for the period, comprising a revenue loss of £32,000 and a capital loss of £609,000.

‘F’ Share pool – Portfolio valuation
The period to 30 June 2020 has seen a number of unforeseen developments which has impacted the ‘F’ Share portfolio. The portfolio companies are heavily exposed to the effective lockdown in the UK economy, resulting in an unrealised loss of £609,000.

The most significant decreases in valuation were in respect of Pearce and Saunders Limited and Downing Pub EIS ONE Limited which both operate in the pub and hospitality industry.

Pearce and Saunders Limited, the owner of freehold pubs in south east London, was decreased by £457,000 to reflect the forced closure of the site and the wider economic impact of COVID-19.

Downing Pub EIS ONE Limited, which acquired the holdings of two other pub companies in 2017, was decreased in value by £134,000 following the collapse of the proposed management buy out that was due to complete in March 2020.

The Investment Manager has supported both of the above investee companies during this difficult time as well as ensuring the businesses have taken advantage of the Government support that has been made available.

There were a small number of valuation increases in the period. The most notable being a £42,000 increase in value to Fresh Green Power Limited, the domestic rooftop solar company, which was increased due to improved operating performance over the period.

Realisation plans
A number of the investment companies within the portfolio had proposed exit plans in place which have now been effectively paused or have collapsed as a result of the ongoing pandemic and have forced the Investment Manager to seek other opportunities to exit.

Despite the divestment timeline suffering, the Investment Manager is hopeful that there are reasonable prospects for completion from a small number of the investee companies across the remainder of the year if conditions improve, although shareholders should note it is currently unclear when and if these will be achieved. The exact timing will be dependent on third parties and a number of external factors.

Outlook
Valuations of investments within the ‘F’ Share pool have been impacted as a result of the ongoing coronavirus pandemic. The pool is exposed to a number of the sectors which have suffered heavily from the effective lockdown in the UK. Focus for the Investment Manager remains on the exit of the final nine investments in the portfolio as well as continuing to support all investee companies during this difficult period.

Downing LLP

30 September 2020

SUMMARY OF INVESTMENT PORTFOLIO
‘F’ SHARE POOL

as at 30 June 2020

	Cost	Valuation	Unrealised gain/(loss) in period	% of portfolio by value
	£’000	£’000	£’000
VCT qualifying and partially qualifying investments
Downing Pub EIS ONE Limited	490	522	(134)	26.2%
Fresh Green Power Limited	189	273	42	13.7%
Atlantic Dogstar Limited	200	179	(79)	9.0%
Pearce and Saunders Limited	497	93	(457)	4.6%
Green Energy Production UK Limited	100	64	10	3.2%
Apex Energy Limited	1,000	26	9	1.3%
Non-qualifying investments
Baron House Developments LLP	481	673	-	33.8%
London City Shopping Centre Limited	66	-	-	0.0%
Pearce and Saunders DevCo Limited	44	-	-	0.0%
	3,067	1,830	(609)	91.8%
Cash at bank and in hand		162		8.2%
Total		1,992		100.0%

SUMMARY OF INVESTMENT MOVEMENTS
‘F’ SHARE POOL

as at 30 June 2020

Disposals	Cost	Market value at 01/01/20	Disposal proceeds	Gain against cost	Total realised gain
	£’000	£’000	£’000	£’000	£’000
Pearce and Saunders DevCo Limited	2	2	2	-	-
	2	2	2	-	-

INVESTMENT MANAGER’S REPORT

‘G’ SHARE POOL
The ‘G’ Share pool raised funds in 2013 and focus for the Share pool remains on the process of realising investments, as it looks to maximise Shareholder returns. Over the period to 30 June 2020, the process has been significantly delayed as a result of the ongoing coronavirus pandemic.

Investment activity

During the period a partial exit was successfully completed from Pearce and Saunders Limited, the owner of freehold pubs in south east London. Proceeds of £230,000 were generated, which represented an uplift over cost of £173,000.

‘G’ Share pool – Portfolio valuation
The period to 30 June 2020 has seen a number of disappointing valuation movements, resulting in an unrealised loss of £3.6 million.

The majority of the unrealised loss is driven from holding a portfolio of investments which have been severely impacted by the effective lockdown within the UK and its resulting consequences.

The largest decrease in value at the period end related to Atlantic Dogstar Limited, which owns a group of London pubs. As a result of the lockdown restrictions, the two London pubs were forced to close and the planned management buy out that was due to complete in March 2020 collapsed, leading to a reduction in value of £1.4 million.

The investments in Quadrate Spa Limited and Quadrate Catering Limited, which own and operate a health club business and a top floor restaurant in The Cube complex in Birmingham were both written down to nil, generating a combined loss of £1.9 million.

A sale and leaseback transaction was due to complete in February 2020. However as a result of the coronavirus pandemic, both companies are not operational following government-imposed lockdown measures and the offer has been withdrawn. We continue to monitor the situation and are assisting management where possible.

Realisation plans
Prior to the unforeseen coronavirus pandemic, there were a number of realisation plans in place for the exit of several portfolio companies. As a result of the ongoing situation, these plans have either collapsed or have been delayed. It is currently unclear when further exits will be achieved, although the manager is seeking opportunities where possible.

Net asset value
At 30 June 2020, the net asset value (“NAV”) for a holding of one ‘G’ Share was 34.1p, which represents a net decrease of 12.0p (24.9%) over the period. Total Return (NAV plus dividends paid to date) is now 87.6p.

Results
The loss on ordinary activities for the ‘G’ Share pool, after taxation, for the period was £3.0 million, comprising a revenue profit of £344,000 and a capital loss of £3.4 million.

Outlook

The falls in value experienced by the ‘G’ Share pool during the year are extremely disappointing. Businesses in the leisure and hospitality sector have clearly suffered heavily from the lockdown and provisions have been required as a result.

We continue to dedicate substantial resources to supporting the investee companies through these difficult and unprecedented times as we look to continue the process of realising investments and return funds to investors.

Downing LLP

30 September 2020

SUMMARY OF INVESTMENT PORTFOLIO
‘G’ SHARE POOL

as at 30 June 2020

	Cost	Valuation	Unrealised gain/(loss) in period	% of portfolio by value
	£’000	£’000	£’000
VCT qualifying and partially qualifying investments
Atlantic Dogstar Limited	3,500	3,142	(1,379)	42.1%
Walworth House Pub Limited	1,330	1,176	(47)	15.8%
Downing Pub EIS ONE Limited	980	1,044	(267)	14.0%
Hermes Wood Pellets Limited	1,000	152	-	2.0%
Pearce and Saunders Limited	136	136	-	1.8%
Zora Energy Renewables Limited	750	49	(19)	0.7%
Apex Energy Limited	1,300	33	11	0.4%
Ormsborough Limited	500	-		0.0%
Quadrate Catering Limited	1,450	-	(1,196)	0.0%
Non-qualifying investments
Baron House Developments LLP	1,093	1,530		20.5%
Quadrate Spa Limited	1,450	-	(669)	0.0%
London City Shopping Centre Limited	110	-		0.0%
	13,599	7,262	(3,566)	97.3%
Cash at bank and in hand		204		2.7%
Total		7,466		100%

SUMMARY OF INVESTMENT MOVEMENTS
‘G’ SHARE POOL

as at 30 June 2020

Disposals	Cost	Market value at 01/01/20	Disposal proceeds	Gain against cost	Total realised gain
	£’000	£’000	£’000	£’000	£’000
Pearce and Saunders Limited	57	57	230	173	173
	57	57	230	173	173

INVESTMENT MANAGER’S REPORT
‘K’ SHARE POOL

At the period end, the ‘K’ Share pool held 15 investments across a range of industries. It is very disappointing to have to report that several investee companies have suffered further setbacks which have required significant provisions for the six months to 30 June 2020.

‘K’ Share pool – Portfolio valuation
As noted in the year end accounts, the portfolio faced a number of challenges in the first few months of 2020, leading to an unrealised loss of £2.0 million as at 30 June 2020.

A significant portion of the unrealised loss for the period related to three investments. Further details on each is noted below.

The most notable provision is in respect of Garthcliff Shipping Limited, which owns a feeder container vessel that is chartered to third parties to transport containers to and from ports. Following a period of reduced demand for container vessels as worldwide economies suffered as a result of the coronavirus pandemic, a buyer for the vessel has been sought and the value has been reduced by £1.0 million in line with anticipated exit proceeds.

Apprise Pubs Limited, was established to build an estate of quality freehold pubs across the south of England alongside long-term Downing partner, Oakman Inns. As a result of the government-imposed lockdown, one site was forced to close whilst refurbishment at a second site was postponed leading to a provision of £442,000.

Exclusive Events Venues Limited, the operator of an exclusive use wedding venue in Chester, England, completed refurbishment in February 2020. In line with government-imposed measures, the venue was forced to postpone events, resulting in a provision of £157,000.

We continue to work closely and support each of the portfolio companies, ensuring that they have benefited from the Government aid that is available and take sensible decisions as they deal with these extraordinary circumstances.

Net asset value, results and dividend
At 30 June 2020, the net asset value (“NAV”) and Total Return for a holding of one ‘K’ Share was 36.6p, which represents a net decrease of 14.1p (24.2%) over the period. The loss on ordinary activities for the ‘K’ Share pool, after taxation, was £2.2 million for the period, comprising a revenue loss of £186,000 and a capital loss of £2.0 million.

The Company will pay an interim dividend of 2.5p per ‘K’ Share on 27 November 2020, to Shareholders on the register at 6 November 2020.

Outlook

Regrettably, the coronavirus pandemic has further hit investment valuations during the period to 30 June 2020, with a large number of portfolio companies within the leisure and hospitality sectors being impacted most severely.

The process of realising the investments to return funds to shareholders is due to commence 2021. Prior to this, we shall be supporting each investee company within the portfolio as much as possible, seeking to position them as well as we can to facilitate an exit in line with the divestment timeline and at optimal value.

Downing LLP

30 September 2020

SUMMARY OF INVESTMENT PORTFOLIO
‘K’ SHARE POOL

as at 30 June 2020

	Cost	Valuation	Unrealised (loss)/gain in period	% of portfolio by value
	£’000	£’000	£’000
VCT qualifying investments
Apprise Pubs Limited	1,300	858	(442)	15.0%
Walworth House Pub Limited	500	442	(18)	7.7%
Pilgrim Trading Limited	432	347	(85)	6.1%
Exclusive Events Venues Limited	500	343	(157)	6.0%
SF Renewables (Solar) Limited	337	292	(12)	5.1%
Garthcliff Shipping Limited	1,300	255	(1,045)	4.4%
Rockhopper Renewables Limited	591	222	(73)	3.9%
Indigo Generation Limited	736	179	(79)	3.1%
Ironhide Generation Limited	736	161	(96)	2.8%
Zora Energy Renewables Limited	350	23	(8)	0.4%
Ormsborough Limited	1,400	-	-	0.0%
Yamuna Renewables Limited	1,300	-	-	0.0%
Jito Trading Limited	1,500	-	-	0.0%
Non-qualifying investments
Fenkle Street LLP	287	306	(12)	5.3%
London City Shopping Centre Limited	15	-	-	0.0%
	11,284	3,428	(2,027)	59.8%
Cash at bank and in hand		2,308		40.2%
Total		5,736		100%

UNAUDITED SUMMARISED BALANCE SHEET

as at 30 June 2020

	30 Jun 2020						30 Jun 2019		31 Dec 2019
		‘F’ Shares	‘G’ Shares	‘K’ Shares	Total		Total		Total
		£’000	£’000	£’000	£’000		£’000		£’000
Fixed assets
Unquoted investments		1,830	7,262	3,428	12,520		22,452		18,781
Current assets
Debtors		93	1,450	6	1,549		1,438		1,374
Cash at bank and in hand		162	204	2,308	2,674		7,337		4,136
		255	1,654	2,314	4,223		8,775		5,510
Creditors: amounts falling due within one year		(53)	(302)	9	(346)		(494)		(306)
Net current assets		202	1,352	2,323	3,877		8,281		5,204
Net assets		2,032	8,614	5,751	16,397		30,733		23,985
Capital and reserves
Called up share capital		11	25	16	52		52		52
Capital redemption reserve		149	-	-	149		149		149
Special reserve		3,949	14,671	14,986	33,606		38,681		34,938
Share premium account		-	-	-	-		-		-
Revaluation reserve		(1,419)	(5,726)	(3,642)	(10,787)		(6,361)		(4,585)
Capital reserve – realised		(1,099)	(1,831)	(4,155)	(7,085)		(2,249)		(7,105)
Revenue reserve		441	1,475	(1,454)	462		461		536
Total equity shareholders’ funds		2,032	8,614	5,751	16,397		30,733		23,985
Basic and diluted net asset value per:
‘F’ Share		18.8p					30.6p		24.7p
‘G’ Share			34.1p				63.2p		48.1p
‘K’ Share				36.6p			72.9p		58.2p

STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2020

Called up share capital			Capital redemption Reserve	Special Reserve	Share Premium Reserve	Revaluation reserve	Capital reserve realised	Revenue reserve	Total
	£’000		£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 1 January 2019		52	149	38,471	-	(3,911)	(2,250)	349	32,860
Total comprehensive income		-	-	-	-	(5,388)	256	337	(4,795)
Realisation of impaired valuations		-	-	-	-	4,891	(4,891)	-	-
Transactions with owners
Purchase of own shares		-	-	-	-	-	-	-	-
Transfer between reserves		-	-	(3,533)	-	(177)	3,710	-	-
Dividends paid		-	-	-	-	-	(3,930)	(150)	(4,080)
Cancellation of shares		-	-	-	-	-	-	-	-
At 31 December 2019		52	149	34,938	-	(4,585)	(7,105)	536	23,985
Total comprehensive income		-	-	-	-	(6,202)	173	126	(5,903)
Transaction with owners
Purchase of own shares		-	-	-	-	-	-	-	-
Transfer between reserves		-	-	(1,332)	-	-	1,332	-	-
Dividends paid		-	-	-	-	-	(1,485)	(200)	(1,685)
At 30 June 2020		52	149	33,606	-	(10,787)	(7,085)	462	(16,397)

INCOME STATEMENT

for the six months ended 30 June 2020

Company Total

	Six months ended 30 Jun 2020				Six months ended 30 Jun 2019				Year ended 31 Dec 2019
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£’000	£’000	£’000		£’000	£’000	£’000		£’000
Income	1,908	-	1,908		619	16	635		1,198
Gains/(losses) on investments
- realised	-	173	173		-	125	125		240
- unrealised	-	(6,202)	(6,202)		-	(2,380)	(2,380)		(5,388)
	1,908	(6,029)	(4,121)		619	(2,239)	(1,620)		(3,950)
Investment management fees	(116)	-	(116)		(289)	-	(289)		(551)
Other expenses	(1,557)	-	(1,557)		(123)	-	(123)		(244)
Return/(loss) on ordinary activities before taxation	235	(6,029)	(5,794)		207	(2,239)	(2,032)		(4,745)
Tax on total comprehensive income and ordinary activities	(109)	-	(109)		(95)	-	(95)		(50)
Return/(loss) attributable to equity shareholders	126	(6,029)	(5,903)		112	(2,239)	(2,127)		(4,795)
Return per ‘F’ Share	(0.3p)	(5.6p)	(5.9p)		-	1.9p	1.9p		1.0p
Return per ‘G’ Share	1.4p	(13.4p)	(12.0p)		0.8p	1.4p	2.2p		1.2p
Return per ‘K’ Share	(1.2p)	(12.9p)	(14.1p)		(0.6p)	(17.8p)	(18.4p)		(33.2p)

INCOME STATEMENT (analysed by Share pool)

for the six months ended 30 June 2020

‘F’ Shares	Six months ended 30 Jun 2020					Six months ended 30 Jun 2019				Year ended 31 Dec 2019
	Revenue		Capital	Total		Revenue	Capital	Total		Total
	£’000		£’000	£’000		£’000	£’000	£’000		£’000
Income	111		-	111		76	-	76		105
Gains/(losses) on investments
- realised	-		-	-		-	-	-		110
- unrealised	-		(609)	(609)		-	201	201		(10)
	111		(609)	(498)		76	201	277		205
Investment management fees		(20)	-	(20)		(24)	-	(24)		(49)
Other expenses	(118)		-	(118)		(19)	-	(19)		(39)
Return/(loss) on ordinary activities before taxation	(27)		(609)	(636)		33	201	234		117
Tax on total comprehensive income and ordinary activities		(5)	-	(5)		(27)	-	(27)		(7)
Return/(loss) attributable to equity shareholders	(32)		(609)	(641)		6	201	207		110

INCOME STATEMENT (analysed by Share pool)

for the six months ended 30 June 2020

‘G’ Shares	Six months ended 30 Jun 2020				Six months ended 30 Jun 2019				Year ended 31 Dec 2019
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£’000	£’000	£’000		£’000	£’000	£’000		£’000
Income	1,738	-	1,738		491	-	491		941
Gains/(losses) on investments
- realised	-	173	173		-	125	125		125
- unrealised	-	(3,566)	(3,566)		-	236	236		(271)
	1,738	(3,393)	(1,655)		491	361	852		795
Investment management fees	(96)	-	(96)		(148)	-	(148)		(288)
Other expenses	(1,189)	-	(1,189)		(55)	-	(55)		(110)
Return/(loss) on ordinary activities before taxation	453	(3,393)	(2,940)		288	361	649		397
Tax on total comprehensive income and ordinary activities	(109)	-	(109)		(86)	-	(86)		(94)
Return/(loss) attributable to equity shareholders	344	(3,393)	(3,049)		202	361	563		303

INCOME STATEMENT (analysed by Share pool)

for the six months ended 30 June 2020

‘K’ Shares		Six months ended 30 Jun 2020				Six months ended 30 Jun 2019				Year ended 31 Dec 2019
	Revenue		Capital	Total		Revenue	Capital	Total		Total
		£’000	£’000	£’000		£’000	£’000	£’000		£’000
Income		59	-	59		52	16	68		152
(Losses)/gains on investments
- realised		-	-	-		-	-	-		5
- unrealised		-	(2,027)	(2,027)		-	(2,817)	(2,817)		(5,107)
		59	(2,027)	(1,968)		52	(2,801)	(2,749)		(4,950)
Investment management fees		-	-	-		(117)	-	(117)		(214)
Other expenses		(250)	-	(250)		(49)	-	(49)		(95)
Loss on ordinary activities before taxation		(191)	(2,027)	(2,218)		(114)	(2,801)	(2,915)		(5,259)
Tax on total comprehensive income and ordinary activities		5	-	5		18	-	18		51
Loss attributable to equity shareholders		(186)	(2,027)	(2,213)		(96)	(2,801)	(2,897)		(5,208)

UNAUDITED CASH FLOW STATEMENT

for the six months ended 30 June 2020

		30 Jun 2020							30 Jun 2019		31 Dec 2019
				‘F’ Shares	‘G’ Shares	‘K’ Shares	Total		Total		Total
				£’000	£’000	£’000	£’000		£’000		£’000
Net cash (outflow)/ inflow from operating activities				(46)	119	(82)	(9)		65		166
Cash flows from investing activities
Sale of investments				2	230	-	232		3,217		3,995
Net cash inflow from investing activities				2	230	-	232		3,217		3,995
Net cash (outflow) /inflow before financing activities				(44)	349	(82)	223		3,282		4,161
Cash flows from financing activities
Equity dividend paid				-	(506)	(1,179)	(1,685)		-		(4,080)
Net cash outflow from financing activities				-	(506)	(1,179)	(1,685)		-		(4,080)
(Decrease)/increase in cash				(44)	(157)	(1,261)	(1,462)		3,282		81

NOTES TO THE UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2020

			30 Jun 2020						30 Jun 2019		31 Dec 2019
				‘F’ Shares	‘G’ Shares	‘K’ Shares	Total		Total		Total
				£’000	£’000	£’000	£’000		£’000		£’000
Cash inflow/(outflow) from operating activities
Return/(loss) on ordinary activities before taxation				(636)	(2,940)	(2,218)	(5,794)		(2,032)		(4,745)
Corporation tax				-	-	-	-		(8)		(145)
(Gains)/losses on investments				609	3,393	2,027	6,029		2,255		5,148
(Increase)/decrease in other debtors				(24)	(310)	159	(175)		(108)		(45)
(Decrease)/increase in other creditors				5	(24)	(50)	(69)		(42)		(47)
Net cash (outflow)/inflow from operating activities				(46)	119	(82)	(9)		65		166
Analysis of net funds
Beginning of period				206	361	3,569	4,136		4,055		4,055
Net cash (outflow)/inflow				(44)	(157)	(1,261)	(1,462)		3,282		81
End of period				162	204	2,308	2,674		7,337		4,136

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

1.General information
Downing TWO VCT plc (“the Company”) is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.

2.Accounting policies - Basis of accounting
The unaudited half-yearly results cover the six months to 30 June 2020 and have been prepared in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in February 2018 (“AIC SORP”) and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2019, which were prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (“FRS 102”).

3. All revenue and capital items in the Income Statement derive from continuing operations.

4. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

5. The comparative figures are in respect of the six-month period ended 30 June 2019 and the year ended 31 December 2019 respectively.

6. Dividends

			Six months ended 30 June 2020				Year to 31 Dec 2019
	Per share		Revenue	Capital	Total		Total
Paid in period	pence		£’000	£’000	£’000		£’000
‘F’ Shares
Y/E Dec 2019 Interim	5.0p		-	-	-		541
			-	-	-		541
‘G’ Shares
Y/E Dec 2019 Interim	2.0p		200	306	506
Y/E Dec 2019 Interim	14.0p		-	-	-		3,539
			200	306	506		3,539
‘K’ Shares
Y/E Dec 2019 Interim	7.5p		-	1,179	1,179		-
			-	1,179	1,179		-

No dividends have been paid or declared in respect of the ‘K’ Shares.

7. Basic and diluted return per share

	Weighted average number of shares in issue		Revenue return/(loss)			Capital return/(loss)
			£’000	Per share		£’000	Per share
‘F’ Shares	10,810,859		(32)	(0.3p)		(609)	(5.6p)
‘G’ Shares	25,281,571		344	1.4p		(3,393)	(13.4p)
‘K’ Shares	15,718,154		(186)	(1.2p)		(2,027)	(12.9p)
			126			(6,029)

8. Net asset value per share

	Shares in issue		Net asset value
			£’000		Per share
‘F’ Shares	10,810,859		2,032		18.8p
‘G’ Shares	25,281,571		8,614		34.1p
‘K’ Shares	15,718,154		5,751		36.6p
			16,397

9. Reserves

	Period ended 30 Jun 2020		Year ended 31 Dec 2019
	£’000		£’000
Capital redemption reserve	149		149
Special reserve	33,606		34,938
Revaluation reserve	(10,787)		(4,585)
Capital reserve - realised	(7,085)		(7,105)
Revenue reserve	462		536
	16,345		23,933

The Special reserve, Capital reserve - realised and Revenue reserve are all distributable reserves. The Revaluation reserve includes losses of £11,616,000 which are included in the calculation of distributable reserves. Total distributable reserves are £15,367,000 (31 Dec 2019: £21,453,000).

10. The fair value of investments is determined using the detailed accounting policy set out in the statutory accounts for the year ended 31 December 2019.

The Company has categorised its financial instruments using the fair value hierarchy as follows:

Level 1 Reflects financial instruments quoted in an active market;
Level 2 Reflects financial instruments that have prices that are observable either directly or indirectly; and
Level 3 Reflects financial instruments that use valuation techniques that are not based on observable market data (unquoted equity investments and loan note investments).

	Level 1		Level 2	Level 3	Period ended 30 June 2020		Level 1	Level 2	Level 3	Year ended 31 Dec 2019
	£’000		£’000	£’000	£’000		£’000	£’000	£’000	£’000
Loan notes	-		-	4,512	4,512		-	-	5,424	5,424
Unquoted equity		-	-	8,008	8,008		-	-	13,357	13,357
		-	-	12,520	12,520		-	-	18,781	18,781

11. The unaudited condensed financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 December 2019 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Auditor’s report on those financial statements was unqualified.

12. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the “Statement: Half-Yearly Financial Reports” issued by the UK Accounting Standards Board as well as in accordance with FRS 104 Interim Financial Reporting and the half-yearly financial report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

13. Risks and uncertainties

Under the Disclosure and Transparency Directive, the Board is required, in the Company’s half-yearly results, to report on principal risks and uncertainties facing the Company over the remainder of the financial year. The impact of the coronavirus pandemic has created heightened uncertainty but has not changed the nature of these risks.

The Board concluded that the key risks facing the Company over the remainder of the financial period are as follows:

i) Compliance risk of failure to maintain approval as a VCT; and
ii) Investment risk associated with investing in small and immature businesses.

The Company’s compliance with the VCT regulations is continually monitored by the Manager, who reports regularly to the Board on the current position. The Company has also reappointed Philip Hare & Associates LLP to provide regular reviews and advice in this area.

In order to make VCT qualifying investments, the Company has to invest in small businesses which are often immature. The impact of the coronavirus pandemic has been significant on some portfolio companies and, in many cases, the VCT regulations restrict the Company from making further investment into these businesses, so the Manager seeks to provide whatever other support they can to these businesses, including encouraging them to take advantage of government support that may be available. The Company also has a limited period in which it must invest the majority of its funds. The Manager follows a rigorous process in vetting and carefully structuring new investments, including taking a charge over the assets of the business wherever possible and, after an investment is made, closely monitoring the business. The Board is satisfied that these approaches provide satisfactory management of the key risks.

14. Going concern

The Directors have reviewed the Company’s financial resources at the period end and conclude that the Company is well placed to manage its business risks despite the current economic outlook and impact of the COVID-19 pandemic that is still being experienced

The Board confirms that it is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, the Board believes that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.

15. Copies of the unaudited half-yearly report will be sent to Shareholders shortly. Further copies can be obtained from the Company’s registered office or will be available for download from www.downing.co.uk.